U.S. National Healthcare Reform: An Overview for Hill & Usher Clients

The Patient Protection and Affordable Care Act (PPACA; H.R. 3590) was signed into law by President Barack Obama on March 23, 2010. It was subsequently amended via The Health Care and Education Reconciliation Act of 2010 (H.R. 4872), signed into law by President Obama on March 30, 2010.

As of the date of this writing, there is additional legislation pending in the form of H.R. 3962, The Affordable Health Care for America Act (see: http://www.govtrack.us/congress/bill.xpd?bill=h111-3962).

This subject is complex. The legislation is huge, running over two thousand pages. It is also politically charged.

On March 23, 2010, the Gallup poll reported, "By Slim Margin, Americans Support Healthcare Bill's Passage. Nearly half of Americans give a thumbs-up to Congress' passage of a healthcare reform bill last weekend, with 49% calling it "a good thing." Republicans and Democrats have polar opposite reactions, with independents evenly split." Two days later on March 25, 2010, Rasmussen Reports said, "55% Favor Repeal of Health Care Bill. Just before the House of Representatives passed sweeping health care legislation last Sunday, 41% of voters nationwide favored the legislation while 54% were opposed. Now that President Obama has signed the legislation into law, most voters want to see it repealed."

Some of the hot-button issues have concerned single-payer, a public option, abortion, subsidies for un­documented immigrants, what have been termed "death panels," and the extent of IRS power in penalizing those who do not purchase required insurance coverage.

• Single-payer wasn't entertained in the Senate hearings on health care reform.

• The public option was dropped.

• Reportedly, there is no change to the Hyde Amendment (see: http://en.wikipedia.org/wiki/Hyde_Amendment) concerning barring the use of certain federal funds to pay for abortions except in cases of rape, incest, or to save the life of a woman (see: http://www.whitehouse.gov/the-press-office/executive-order-patient-protection-and-affordable-care-acts-consistency-with-longst). The state/regional-level Exchanges (discussed below) must provide for the collection of separate premiums from each patient to pay for abortions. All such premiums are voluntary only. No one is forced to pay for insurance coverage for abortion services. However, no one knows the loopholes people may attempt to create. Also, the Exchange must provide insurance options where abortions are not an option. We don't raise these points for political purposes but rather to inform our clients of the facts of the legislation the best we are able to deduce at this point. State laws will stand. Carriers will not be required to offer abortions. The law also requires that insureds be notified before they select coverage which coverages offer the service versus which do not.

• There are provisions for "end-of-life counseling."

•·        The IRS will apparently assess monetary penalties for those who are to purchase health insurance coverage but don't. As for how far enforcement will go, there is a great deal of heated speculation that we will leave to the political pundits.

The actual bill states the following:

(2) SPECIAL RULES- Notwithstanding any other provision of law-

(A) WAIVER OF CRIMINAL PENALTIES- In the case of any failure by a taxpayer to timely pay any penalty imposed by this section, such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure.

(B) LIMITATIONS ON LIENS AND LEVIES- The Secretary shall not-

(i) file notice of lien with respect to any property of a taxpayer by reason of any failure to pay the penalty imposed by this section, or

(ii) levy on any such property with respect to such failure.

There were some people on the fringes who threatened violence and even carried out some property destruction, but they are an extreme minority and do not reflect the vast majority on either side of the reform debate.

Eleven state Attorneys General had said they plan to challenge the constitutionality of the legislation in the various courts. As of this writing, 18 states have joined in a suit begun in Pensacola, Florida challenging the legislation's constitutionality. This is a very fluid situation, so that number could change quickly {see: "UPDATE 3-Florida says challenge to healthcare reform widens"; "Five more states joining suit, which will now group 18"; "Challenge says healthcare overhaul is unconstitutional"; "Fla. attorney general says will pursue to Supreme Court (Adds healthcare analyst's comment)," by Pascal Fletcher. Reuters. April 7, 2010. http://www.reuters.com/article/idUSN079896320100407?type=marketsNews}.

The main issue is whether the federal government can force people to buy health insurance and whether they can do so using the Interstate Commerce Clause.

With so much information and misinformation (whether witting or not), we thought we'd gather the highlights of the bills as passed so our clients, potential clients, and readers might better makes sense of the legislation and its bearing.

So as not to confuse the issue and so that we may focus on insurance, which is our business, in this article, we won't be dealing with the student-loan reform portions of the legislation.

We will break down the legislation in terms of how it impacts upon individuals, families, and employers. We will not focus much on costs/savings regarding government or costs or savings exclusively concerning healthcare providers.

The current law provides that the following will be implemented over a four-year period. The list of changes and the dates that they take effect are too numerous for us to duplicate here. Many of the provisions and when they will take effect are listed online here.  (Be careful relying upon the Wikipedia for insurance and surety information. The editors can do poor work because they can be completely unsupervised at the time of publication by highly experienced professionals in the industry.)

Individuals and Families

Medicaid (see also, below: "Public Programs," subsection: "Medicaid")

Individuals whose modified adjusted gross income does not exceed 133% of the Federal Poverty Level (FPL) and who are under age 65 will be covered under Medicaid or private insurance offered through Exchanges (explained below).

Another threshold is 150% of the Federal Poverty Level. Premiums will be limited to 4% of household income for families at and below the 150% level. Health plans are to cover 94% of the cost.

Families falling between 150% and 400% (approx. $88,000 for a family of four) will pay 4% to 9.8% (on a sliding scale). The government will advance refundable tax credits. Health plans would cover 70 percent of the cost.

There are a number of thresholds that are to be phased in over several years.

A huge change concerns pre-existing conditions. Effective September 23, 2010, children are not to be denied coverage on account of pre-existing conditions. Adults and pre-existing conditions are discussed below at "Insurance Pooling."

The Children's Health Insurance Program (CHIP) is a state and federal partnership that provides low-cost health insurance coverage for children in families who earn too much income to qualify for Medicaid but cannot afford to purchase private health insurance coverage (see: http://www.insurekidsnow.gov/chip/index.html) This program cannot be cut until 2019.

Also effective September 23, 2010, unmarried dependant children will be able to be covered as dependants on employer-provided coverage up to age 26 (some reports say through age 26; that is until their 27th birthday).

The actual bill states:

SEC. 2714. EXTENSION OF DEPENDENT COVERAGE.

(a) IN GENERAL.-A group health plan and a health insurance issuer offering group or individual health insurance coverage that provides dependent coverage of children shall continue to make such coverage available for an adult child (who is not married) until the child turns 26 years of age.

That provision will come as some relief during the current economic downturn while more young adults remain in their parents' homes or in college and are finding employment opportunities tough going.

Lifetime caps on coverage will be removed and annual caps will be removed in 2014.

"Rescissions" (also spelled recisions and recissions), which means here the ability of the insurer (carrier, insurance company) to cancel the coverage, will be eliminated except in cases of proven fraud by the insured and not for pre-existing conditions or because the insured becomes sick and/or "costly" to treat.

Insurance plans must include a built-in appeals method so that the insured (you/your family) may appeal an insurance carrier's decision.

Those who retire early (ages 55-64) will benefit from a specific program designed to reduce the cost of that coverage, which historically has been very expensive.

Medicare

Medicare Part D

Medicare Part D (which deals with prescription drugs) has had an uncovered gap between the coverage limit and when catastrophic coverage kicked in. All cost of prescription drugs after the standard limit has been reached but before catastrophic coverage begins has had to be borne in full by patients.

$2,700 has been the standard limit. Catastrophic has kicked in at $6,154. The difference of $3,454 has been a huge hole for many people on very tight retirement incomes for instance.

The beneficiary coinsurance rate in the Medicare Part D coverage gap will be phase down gradually from 100% to 25% by 2020. By 2020, the government is to be covering 75% of the $2,700.

According to the Kaiser Family Foundation:

• For brand-name drugs, require pharmaceutical manufacturers to provide a 50% discount on prescriptions filled in the Medicare Part D coverage gap beginning in 2011, in addition to federal subsidies of 25% of the brand-name drug cost by 2020 (phased in beginning in 2013)

• For generic drugs, provide federal subsidies of 75% of the generic drug cost by 2020 for prescriptions filled in the Medicare Part D coverage gap (phased in beginning in 2011)

This gap (commonly referred to as the "donut hole") will be closed by 2011 (some reports say 2020).

For people on subsistence-level fixed-income, the additional thousands in cost reductions may well mean that the choice between eating or taking needed medicines will no longer be faced. Seniors hit by the gap in 2010 will receive a $250 rebate. Beginning in 2011, seniors in the gap will receive a 50% discount on brand name drugs.

Prescription Coverage

Medicare patients will receive 50% discount on brand-name drugs beginning in 2011. In 2020, it will be increased to 75% on brand-name and generic drugs.

Cuts in Medicare

Medicare payments to Medicare Advantage (Part C; run by private insurance companies) will be gradually reduced by $132 billion over 10 years beginning in 2011 for some parts of the nation.

Medicare payments for home healthcare will also be reduced by $40 billion between now and 2019.

Premium and cost-sharing subsidies

The "subsidies" will go directly to the insurance companies who will discount the insurance policy's premium charged to the customer/insured.

Employers

There are to be premium subsidies.

There are to be $40 billion worth of tax credits for small businesses.

For employers with fewer than 50 employees, the business will be allowed a 50% tax credit against total healthcare-insurance premiums. Such small-business employers are also to be exempt from providing coverage, hence the Exchanges to help get their employees covered under a regulated system where the government can supposedly work to keep the premiums and costs down and the benefits up.

Small businesses (100 or fewer workers) will be able to purchase coverage through an Exchange separate from the Exchange for individuals.

Free Choice Vouchers

Employers offering coverage will provide a free choice voucher to each employee whose income is below 400 percent of the poverty level and if that employee's share of premium cost through the employer would be between 8 and 9.8% of his or her income.

Free-choice vouchers may be used at the Exchanges.

Employers that offer a free choice voucher will not be subject to penalties.

The only reason an employee should do this is if for the same money, the employee can obtain better coverage for the same money/cost to that employee and via the Exchange.

Employers with 200 or more employees must automatically enroll employees in any offered group health insurance plan. Employees can opt out.

Public Programs

Medicaid (see also, above: "Individuals and Families," subsection: "Medicaid")

Expanded Medicaid coverage will represent a huge block of those who are currently completely uninsured.

Medicaid will be expanded in 2014 to cover most of those who fall at or below 133% of the Federal Poverty Level. Medicaid is a federal program administered by the states, which states have different rules but follow a basic framework. Currently, Medicaid is targeted only at the poor who are old, pregnant, disabled, and/or blind.

Many people in poverty have not heretofore qualified for Medicaid. A common misconception is that adding more people to the Medicaid rolls will increase overall healthcare costs for society in general.

Many of those have traditionally resorted to local emergency rooms and to county hospitals and the like. Uncollectible costs have been passed on to wealthier patients and in the form of higher taxes. Often, emergency care is much more costly societally than is preventative care and early treatment that can come in the form of Medicaid. There are also costs associated with missed workdays and families' members reduced to even greater poverty as a result of huge medical debts (the number one cause of bankruptcies in America).

Current eligibility standards are generally describe here:

http://www.cms.gov/MedicaidEligibility/02_AreYouEligible_.asp (last accessed Tuesday, April 13, 2010)

Increases in Medicaid brand-name drug rebates took effect the moment President Obama signed the legislation on March 23, 2010.

Illegal immigrants are ineligible.

Medicare

Medicare will undergo a number of changes. Details are scattered throughout this article (see also, above: "Individuals and Families," subsection: "Medicare").

Medicare will be extended to small rural hospitals and other healthcare facilities.

Public Plan

Office of Personnel Management (federal)

The Office of Personnel Management will contract with privately owned and operated insurance companies so that a minimum of two national health plans will be available to individuals, families, and small businesses. One plan will be nonprofit.

There are to be four levels of coverage based on:

Premium

Out-of-pocket cost

Benefits (beyond the minimum required), and

Catastrophic coverage

Funds will be available for non-profit, member-run health insurance CO-OP's in each state. (This is as close to a "public option" as the current legislation came.)

Private Insurance

Existing plans will remain the same except for the following:

Extend dependent coverage to age 26

Eliminate annual and lifetime caps

Prohibit rescissions, and

Limit coverage waiting periods to 90 days

However, Section 1251 of the Patient Protection and Affordable Care Act: "Defines a 'grandfathered health plan' as a group health plan or health insurance coverage in which an individual was enrolled on the date of enactment of this Act."

The Kaiser Family Foundation explains "grandfathered" as it pertains to this legislation as follows:

Grandfather existing individual and group plans with respect to new benefit standards, but require these grandfathered plans to extend dependent coverage to adult children to age 26, prohibit rescissions of coverage, and eliminate waiting periods for coverage of greater than 90 days. Require grandfathered group plans to eliminate lifetime limits on coverage and beginning in 2014, eliminate annual limits on coverage. Prior to 2014, grandfathered group plans may only impose annual limits as determined by the Secretary. Require grandfathered group plans to eliminate pre-existing condition exclusions for children within six months of enactment and by 2014 for adults. (Effective six months following enactment, except where otherwise specified)

Insurance Pooling

There are to be "high-risk" pools for adults with pre-existing conditions and who have not been insured for six month before applying. The annual stop-loss (deductibles, co-pays, etc.) to the policy holder is to be $5,950 ($11,900 for families). 34 states offer some risk pooling right now covering some 183,000 people. This is to go into effect on June 21, 2010, pending the creation of Exchanges (to go into effect in 2014). Once those Exchanges are running, adults will not be able to be denied coverage for pre-existing conditions.

Improving Health Care Quality and Performance

Patient-Centered Outcomes Research Institute

This national institute will tabulate patient outcomes against the type of treatment received. From this database (among other things), the institute will issue non-binding guidelines for utilizing the most effective treatments. It will not mandate particular treatments.

Long-Term Care

Effective January 1, 2011, there will be a new voluntary program for Community Living Assistance Services and Supports (CLASS program). After five-year vesting, those with functional limitations will receive an average of $50 a day for non-medical services and supports to maintain community residence. All working adults will be automatically enrolled unless they opt out.

Prevention/Wellness

Co-payments on preventive care and checkups will be eliminated by 2018. This has been a huge cost savings in other countries. It is cheaper to prevent than it is to treat diseases and injuries.

Food chains with 18 or more outlets will be required to include "nutrient content disclosure statements" (including total calories) posted next to menu items. This should aid those who want to lower overall saturated animal fat, sugar, and salt intake, etc.

Effective September 23, 2010, Qualified Health Plans at no additional costs to the insured such as deductibles or co-pays, will have to provide immunizations recommended by the Centers for Disease Control and Prevention as well as providing other preventive-health services for infants, children, and adolescents.

Medicare is also to cover annual wellness visits.

States/Regions: Exchanges

American Health Benefit Exchanges will be state-based {overseen by the various states or regions where states combine efforts (healthcare choice compacts) or by the federal government where states decline to set up such Exchanges}. Individuals and families at 133 to 400% of the Federal Poverty Level will be able to purchase coverage through these Exchanges. The 2009 Federal Poverty Level is roughly $18,310 for a family of three and $22,050 for a family of four. These figures are fluid, and the definition for any given federal program will vary. Also, the figures depend upon how many of the family/household members are children versus adults. Family/household members are not to be eligible for Medicare or Medicaid or able to be covered by an employer.

There will also be state-based Exchanges for small businesses (100 or fewer workers). States can opt to allow medium and large businesses to participate starting in 2017.

Illegal immigrants will not be allowed to purchase health insurance through these Exchanges.

Individuals and small businesses will be able to form buying cooperatives to form a group just as with large groups at large businesses. This will reduce the costs for those who are otherwise actuarially more costly to cover for the carriers.

No one will be forced to buy through an Exchange rather than on the open market.

Cost Containment

Controlling Insurance Company Overhead and Profits

It appears that insurance carriers will have to disclose the percentage of premium that goes for overhead and profit rather than benefits. Amounts that exceed the overhead and profit limits must be rebated to the insureds.

Individual and small-group providers will be required to spend no less than 80% on medical services and large-group providers, 85%.

Leveling Costs for Individuals and Employers

Health insurers will be prevented from charging higher premiums based on health status (including pre-existing conditions) or gender. (Note: age, geographic area, tobacco use, and number of family members will affect premiums.)

Taxes and Penalties

New Taxes

Employers

Employers will be assessed penalties where their employees take tax credits for purchasing coverage through Exchanges (presumably for lack of having offered coverage to employees through the business/employer). There are exceptions for very small employers.

If any fulltime employee gets subsidized health insurance because the business with more than 50 employees doesn't offer coverage, the employer will be penalized $2,000 for every fulltime employee beginning with the 31st such employee. This is to take effect January 1, 2014.

Employers that do offer coverage and with more than 50 employees where a full-time employee receives a premium tax credit, that employer will pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee. This is also to take effect January 1, 2014.

Individuals making more than $200,000 a year or a married couple making more than $250,000 a year will pay 0.9% more for Medicare Part A hospital insurance. We've seen information on the Internet stating that this will be 3.8%, but the bill (H.R. 3590) says:

SEC. 10906. MODIFICATIONS TO ADDITIONAL HOSPITAL INSURANCE TAX ON HIGH-INCOME TAXPAYERS.

 (a) FICA.--Section 3101(b)(2) of the Internal Revenue Code of 1986, as added by section 9015(a)(1) of this Act, is amended by striking "0.5 percent'' and inserting "0.9 percent''.

 (b) SECA.--Section 1401(b)(2)(A) of the Internal Revenue Code of 1986, as added by section 9015(b)(1) of this Act, is amended by striking "0.5 percent'' and inserting "0.9 percent''.

 (c) Effective Date.--The amendments made by this section shall apply with respect to remuneration received, and taxable years beginning, after December 31, 2012.

This legislation, being as huge as it is and as cobbled together as it necessarily is, may end being reworked in sections. Already, ambiguities have been suggested concerning whether or not it pertains to members of Congress and their staff members (see: "Another HCR Mistake -- Confusion Over Congress' Insurance Coverage," by Donny Shaw. OpenCongress. April 13, 2010. http://www.opencongress.org/articles/view/1810-Another-HCR-Mistake-Confusion-Over-Congress-Insurance-Coverage).

Individuals

Individuals who choose not to become insured will be subject to the following:

Flat Dollar Assessments and Percent of Income Assessment

Flat Fee

$95: 2014

$325: 2015

$695: 2016

% of Taxable Income (alternative penalty)

0.5 to 1.0% of taxable income: 2014,

1.0 to 2.0% of taxable income: 2015

2.0 to 2.5% of taxable income: 2016

After 2016, the penalty will be increased annually by the cost-of-living adjustment.

There are exemptions for the following:

Hardship

Those with a religious objection

American Indians (Native Americans)

Prisoners

Those for whom the cost of the lowest-cost plan would exceed 8% of their individual income

People uninsured for fewer than three months

Those whose income is below the federal income-tax filing threshold (for tax year 2009: $9,350 for an individual and $18,700 for a married couple)

Families that choose not to become insured will pay $2,085.

Starting in 2012, there will be a 3.8% tax on unearned income (passive income; financial investments; such as dividends, interest, and capital gains) for families making more than $250,000 per year ($200,000 for individuals).

Fees on the Health Care Industry

The "Cadillac tax" is a 40% tax to be paid by the insurance company on the portion of the total annual premium above $10,200 covering an individual employee and above $27,500 for an employee with family dependents. This tax isn't to start until 2018. Dental and vision plans are to be exempt.

Additional Fees

There will be additional fees on medical-device companies (2.9% excise tax) and pharmaceutical companies.

If you have particular questions and need help with insurance, please contact us. If we don't know an answer, we'll undertake research to see what options are available and let you know. Please contact us via our simple contact form.

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